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Gasification delays cost construction firm £70m

Construction firm Interserve estimates that it will have to pay £70 million after design, procurement and installation issues led to ‘deterioration’ in the construction contract for Viridor’s planned gasification plant in Glasgow.

In a trading update for the first four months of 2016, the company says that the issues, along with ‘continuing challenges with the supply chain’ will result in further cost overruns and delays to the project.

Construction of Viridor’s Glasgow Recycling and Renewable Energy Centre (GRREC) commenced at the city’s waste treatment site at Polmadie in 2013, with operations planned to begin early this year.

The £154-million facility was designed to handle 200,000 tonnes of residual waste collected by Glasgow City Council every year. Upon the project’s launch, plans stated that the facility would produce enough energy to power the equivalent of 22,000 homes and save the council around £254 million over life of the 25-year contract.

In addition to the gasification plant, the technology for which is being provided by Energos, the facility will have a materials recovery facility (MRF) and an anaerobic digestion plant.

Difficulties

Construction work continues on the site, but, owing to the difficulties with the contract, Interserve says that its UK construction division has been ‘significantly adversely impacted’.

The trading update states: ‘The issues relate to the design, procurement and installation of the gasification plant, together with continuing challenges with the supply chain that will result in further cost overruns and delays.’

In addition to these issues, last month around 70 employees of Interserve on the project took part in two days of strike action organised by the Unite union. The industrial action centres on a pay parity dispute, with Unite claiming that workers employed at the outset of construction agreed to the Construction Industry Joint Council rate, while newer workers are being given the higher National Agreement for the Engineering Construction Industry rate.

The update continues: ‘As a result the board anticipates a £70 million exceptional contract provision to be taken in the first half of 2016, resulting in a similar level of cash outflow spread across 2016 and 2017. We will be pursuing every opportunity to mitigate this situation.’

The company’s share price fell 24 per cent on the news in early morning trading today (6 May).

As well as the GRREC project, Interserve has a contract with Viridor to construct the company’s £177-million energy-from-waste plant in Dunbar. Construction on this project, which began in July 2015, is expected to take until 2017.